S&P 500 rises to highest level in five years on merger optimism

U.S. stocks rose, sending the Standard & Poor’s 500 Index to its highest level in five years, on optimism over dealmaking and data showing rising investor confidence in Germany.

Office Depot Inc. soared 10% and OfficeMax Inc. surged 21% as a person familiar with the matter said the companies have discussed a merger and may announce a deal as early as this week. Bank of America Corp. and Citigroup Inc. rose more than 1.9% as financial shares rallied. Google Inc. jumped 1.6%, surpassing $800 for the first time.

The S&P 500 increased 0.6% to 1,528.66 at 3:33 p.m. in New York. The Dow Jones Industrial Average advanced 41.98 points, or 0.3%, to 14,023.74. Trading in S&P 500 companies was 2.6% above the 30-day average at this time of day. U.S. equity markets were closed yesterday for the Presidents Day holiday.

“More deals out there do create a good sentiment,” Kevin Divney, chief investment officer at Beaconcrest Capital Management in Boston, said in an phone interview. “It’s a positive now because CEOs now are looking further out, and that’s been the issue the past four years. If we can extend horizons it makes for better strategic decisions.”

The S&P 500 completed its seventh consecutive weekly advance on Feb. 15, climbing 0.1% for the five days amid optimism over corporate merger activity and better-than-estimated economic data. The benchmark gauge is 2.3% below its 2007 all-time high of 1,565.15, while the Dow is 0.9% from its record high of 14,164.53.

Deal Activity

Almost $40 billion in deals were announced in the U.S. on Feb. 14, bringing the total this month to more than $140 billion, according to data compiled by Bloomberg. That already surpassed the total of $99.6 billion during the first two months of 2012.

The S&P 500 has climbed 7.2% in 2013 as U.S. lawmakers agreed on a compromise federal budget and earnings topped analyst estimates. About 71% of the 400 companies in the S&P 500 that have released results in the earnings season have exceeded profit projections, and 66% have beaten sales estimates, data compiled by Bloomberg show. Dell Inc. and Marriott International Inc. are among 14 companies on the equity benchmark that will report their earnings today.

German investor confidence jumped more than economists forecast in February to the highest in almost three years, data showed today, adding to signs that Europe’s largest economy is rebounding from its slump.